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Budgeting can be one of the most boring categories, but it can also yield the most information in our financial spending life. 

In this episode, you get just me, Garrett! I will be covering four types of budgets that may work for you and how to decide if it's one that you should implement. While budgeting takes a lot of work, it can give you the clearest picture in your financial life, especially during times of transition.


Here are a few topics I will cover: 

  • - 50-30-20 Budget
  • - Envelope Budgeting Method
  • - Zero Based Budget
  • - Value Based Budget 


Our Podcast – Your Investment Partners

Sit down with Paul and Garrett of Ascend Investment Partners for a bi-weekly conversation about all things financial. Focusing on helping you plan, keep, and grow for a bright future.


Thanks for tuning in. Questions about today's episode let us know. 


(801) 476 - 1200

Full Transcript:

00;00;06;29 - 00;00;23;22

Garrett Smith

Hello and welcome to your investment partners with Paul and Garrett, where we talk about all things financial, focusing on helping you plan, keep and grow for a successful future. If you're new to the podcast, welcome. And if you're tuning in again, welcome back and thank you for listening. Hello and welcome to your investment partners with Paul and Garrett.

00;00;24;05 - 00;00;41;20

Garrett Smith

Today is a solo episode with me and we're going to be talking about budgeting and how budgeting is one of the most boring categories, but it can also yield the most information in your financial spending life. Get a cover for different types of budgets that may work for you, and how to decide if it's one that you should implement.

00;00;42;11 - 00;01;02;17

Garrett Smith

Once again, budgeting takes a lot of work, but it can give us the clear picture in our financial lives, especially during times of transition. My name is Garrett Smith and I look forward to having you with me today. Hello. Welcome. Here's another solo episode for you about a topic that I think a lot about and try to work a lot of people through, and that's budgeting.

00;01;03;15 - 00;01;23;18

Garrett Smith

It's hard. There's definitely more than one way to do it, and likely the first thing you try isn't going to work or it will work, but with a lot of tweaking, it's kind of want to talk through four different budgeting types, budgeting ideas, general categories to kind of see if any of these might work for you. Each personality is a little bit different.

00;01;24;08 - 00;01;47;16

Garrett Smith

Your family and personal and financial situations, your own. And so finding the right tools for you is critical. One thing that's difficult, any time we sit down with a client and kind of talk through budgeting, everybody's just a little bit different. We can't there's no one size fits all. What software, what program, what style I do may not necessarily be work for you.

00;01;48;11 - 00;02;07;26

Garrett Smith

I think you can get used to anything, but finding one that works for you is can make the process a little bit easier. So I'm not going to talk specifically about any apps or software. I'm just kind of the general principles about how a budget is developed and kind of four major areas. And there's some software that goes along with each one of those.

00;02;09;02 - 00;02;31;04

Garrett Smith

For example, there's a gap when it comes to an apps. There's kind of two major categories on the apps side. On the software side, there's the income tracking, the expense tracking, and then there's the planning. Meaning if I buy something and then I say, okay, I went to McDonald's and I bought a sandwich for $5, I told it where it went.

00;02;31;04 - 00;02;49;13

Garrett Smith

And then at the end of the month, I get a report that says this is where are your dollars went? And then you can make changes from there. And other ones are kind of forward looking. You decide where you where you want your dollars to flow, and then you can respond accordingly. So I say I only want to spend $5 at going out to eat.

00;02;49;21 - 00;03;10;24

Garrett Smith

And then when that $5 is up, that's used up. And so budgeting in my mind is more forward looking. So all of these are very forward looking ways of of planning to spend your money so that you're in control, not just expense tracking. You're the app. I personally use this wine app. You need a budget. It's worked well for me.

00;03;10;24 - 00;03;31;18

Garrett Smith

It was kind of a pain to get started, but I've been using it now for over ten years and it worked well for me and my wife and so we're sticking with it. But here are four major areas for kind of ways of developing a first budget or implementing a budget that may work for you. The first one is what I call the 50, 30, 20 budget or the 5010 2020 budget.

00;03;32;17 - 00;04;07;05

Garrett Smith

It's basically where you say 50% of your income is allocated towards essentials like housing, food, transportation. 10%. If you want to add that extra 10% for gifting or charitable giving, 30% or 20% is allocated towards discretionary spending and 20% is for your savings and investing. So in a simple 50, 30, 20 budget, 50% goes to housing essentials, food, transportation, 30% towards discretionary spending, and 20% is saved or invested.

00;04;07;13 - 00;04;26;15

Garrett Smith

And you can kind of slice up that discretionary if you want to add another 10% in there is budgeting. Best method is good for people who are kind of new to budgeting or have limited amount of time because it takes all the decisions out of it. It's clear guidelines for how things should be allocated towards the essentials, the discretionary spending and the saving and investing.

00;04;27;19 - 00;04;43;29

Garrett Smith

But it often doesn't work if you have really irregular income. You know, so if you're income's all over the place, it doesn't quite work because you can't because you may have buffer buffers in there. So one month you may have no income, in another month you may may have double the income. So sometimes that can be a problem.

00;04;44;01 - 00;05;02;05

Garrett Smith

And this but just setting up clear guidelines of this is how what percentage of the income comes in is going to go to these categories is a great way to use. So it's just start by taking your income. It's an easy to get started. Just how much money did I make this month? 50, 30? 20 or 50? Ten.

00;05;02;05 - 00;05;22;01

Garrett Smith

2020. And then that's the number you need to stay up to. And then if you need a tweak, maybe we need to find a different mode of transportation, need to find a different place to live. That kind of opens all those questions. So it's great for just simply getting started. If you're having trouble getting started, it's a great way to do to get going.

00;05;22;12 - 00;05;40;12

Garrett Smith

The second method is really popular, especially over time. It's been around for a long time and that's the envelope budgeting method. It's good for choice for people who have kind of a hard time controlling their spending because you get to see it. What you do is basically involves setting aside cash in envelopes or separate accounts for each budget category.

00;05;40;21 - 00;06;04;01

Garrett Smith

So this is my groceries envelope, this is my entertainment envelope. This is my going out to eat envelope. And when the cash is gone, it's gone. So you can either steal from another envelope or you can just say we're done. And it just helps prevent you from overspending. It is it is probably one of the best ways to stop an overspend, because once the dollars are gone, the dollar are gone.

00;06;04;01 - 00;06;31;26

Garrett Smith

There's just no no other place to get to them. You don't use a credit card. You don't use a debit card. There's no imaginary money that's taking the place. It's if the cash is gone, it's gone. And it's a great way to kind of see where you're spending in a very physical way. So if you're kind of that visible, you know, visual presenter, that that's a great way to do it can help you stick to your budget, requires you to physically see and manage your spending.

00;06;32;15 - 00;06;53;25

Garrett Smith

But it may be inconvenient. You know, you've obviously going to be carrying around lots of cash, which can work for some, but may not work for others. Simple way to get started is just how much money do you have coming in? How much do you want to attempt to put into each category? Housing, you know, like housing, groceries, entertainment on down the line and putting those dollars in there.

00;06;54;13 - 00;07;16;18

Garrett Smith

This method you use to kind of tweak over time and you say, Oh, we didn't end up spending this much in groceries and we overspend and going out to eat. As long as that's a conscious decision that works, that works well. So that's the envelope budgeting system that can can be really helpful. The third way that that can be done is what's considered a zero based budget.

00;07;17;20 - 00;07;35;12

Garrett Smith

Now, these all feel similar, but they're all kind of different in their own way. A zero based budget is a budgeting method that involves allocating every dollar of your income into a specific category with the goal of having a zero balance at the end of the month. So you don't carry over anything but it it covers all your savings and expenses.

00;07;35;12 - 00;08;01;21

Garrett Smith

It's similar to the envelope method, but you just kind of start from you start and end with zero every month or every quarter, depending on how you want to do it. It's, you know, it works really well if you're highly you know, you're highly organized and detail oriented, takes a lot of planning and tracking, but it can get you probably the most clear picture of your financial situation and give you the most information for from a financial perspective, it's a little time consuming.

00;08;01;21 - 00;08;35;01

Garrett Smith

It requires a lot of effort to set up and maintain. This is probably the one that's most like, why NAB? Because your goal is to give every dollar a job. Make sure every dollar has a place that it's going to and but it gives you, you know, very clear information about where you're going. And it can and then it can also handle, you know, as it gets more robust, it can handle fluctuating income because you're just starting and ending with zero every time you don't have, you know, whatever dollars come in is what you plan to go out.

00;08;35;18 - 00;08;56;23

Garrett Smith

So zero based budgeting, it's a great place to start it. It's a little more complicated, but it's probably the best way to get a clear picture on on what you have. So just kind of a quick review. Those three categories is, you know, the first one that 50, 30, 20 is just setting a fixed percentage of what you're going to spend in each category.

00;08;56;23 - 00;09;16;05

Garrett Smith

It doesn't matter what the income is coming in. You say we got to keep 50% of our budget for essentials, 30% for discretionary spending and giving, and then 20% for saving and investing. So it just takes all the decision making out of it. It's set ahead of time. The envelope is great if you're looking for physical and a visual way to do it.

00;09;16;19 - 00;09;42;18

Garrett Smith

You put your dollars in your envelope and when they're gone for that category, they're gone. You're out for you're going out. Dollars are gone. And then a zero based budget is you start with zero into a zero. And it's it is a great way to see where every dollar is going, particularly if you use any sort of financial software, budgeting software.

00;09;43;14 - 00;10;09;06

Garrett Smith

So those are kind of the three. Those are three that are very, very focused on the dollars and cents. If you're on a limited income, that's those three are probably the best way to go. The fourth one, our value based budget is a little bit different. This usually works for those who are have a little bit more flexible spending in their budgeting because you're then allowing your values to kind of drive your decision making instead of just necessities.

00;10;09;18 - 00;10;38;14

Garrett Smith

You know, often when you're kind of on the necessary side, you know, I got to build the habits of saving. I got to build the habit of not overspending in certain categories. Those fixed budgets work really well, but a value based budget is one that involves prioritizing your spending based on your values and allocating your income accordingly. So it may mean, you know, it's just focusing on the areas where you really want to spend your money, the line up with your values versus just being fit into specific box boxes.

00;10;38;18 - 00;10;54;28

Garrett Smith

It's a good choice for people who are clear about their values and want to make sure their spending reflects their priorities. So sometimes value spending can not only be, you know, going out to eat, but it can be very specifically it's I want to make sure I'm spending enough at local restaurants. You know, I don't want to be doing chains, don't want to be doing other things.

00;10;54;28 - 00;11;16;12

Garrett Smith

I don't do local restaurants. Right. That, you know, employ a local chef. And and that's where I want to spend my dollars or I really, you know, enjoy doing specific forms of travel or living in particular areas, just lining up your spending with those values. It just allows you to prioritize your spending on what's most important to you and allocate your income accordingly.

00;11;17;00 - 00;11;46;15

Garrett Smith

It can be very fulfilling when it's done. It can be very rewarding because your values are driving your spending instead of just kind of just fighting with the necessity of it. But it's it definitely requires more thought and planning. It's usually a little less dynamic because oftentimes you spend on what you want to spend on sooner. And so those essentials sometimes can get pushed by the wayside on the value based spending because you're focused on where your dollars are going and maybe kind of missing some of the bare, bare necessities.

00;11;46;26 - 00;15;41;07

Garrett Smith

So this is really good if you kind of have a little bit more discretionary income and you can use you can use that extra discretionary income on a on a value situation. And so really the first thing you need to do is just sit down and identify what those values are.

The commentary on this website reflects the personal opinions, viewpoints and analyses of the Ascend Investment Partners employees providing such comments, and should not be regarded as a description of advisory services provided by Kesler, Norman & Wride, LLC dba Ascend Investment Partners or performance returns of any Ascend Investment Partners Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Ascend Investment Partners manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. 

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